Q&A – Recalculating DAP when changing aged care facilities

Find out what your peers are asking – based on real-life questions submitted to TechConnect.

By William Truong, Senior Technical Manager

Q: My client Betty moved into residential aged care in July 2019 and paid $100,000 towards a $400,000 refundable accommodation deposit (RAD). At the time of entry the maximum permissible interest rate (MPIR) was 5.54% and consequently she is paying a daily accommodation payment (DAP) of $1,385 per month, being the remaining unpaid RAD multiplied by the interest rate and divided by 12 months ($300,000 x 5.54% /12).

She wishes to move to a new aged care facility which has quoted a $450,000 RAD. Assuming she can only afford to pay $100,000 towards the new RAD (being the amount refunded from the old facility) how do we calculate her new daily accommodation payment (DAP)?

A: Upon leaving the facility the old facility, Betty will refund the $100,000 paid towards the original RAD. Upon signing an accommodation agreement with the new facility she will be liable for a $450,000 RAD which can be paid as a lump sum, as a DAP or a combination of the two options. Assuming Betty pays $100,000 toward the new RAD she will be liable for interest on the unpaid amount of $350,000. Fortunately for Betty, the maximum permissible interest rate has reduced since she last entered aged car from 5.54% to the current rate of 4.01%.

As a result, her DAP will be $1,169.60 per month ($350,000 x 4.01% / 12). This is a lower DAP to what she was previously paying despite being liable for a larger RAD.

More information

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Disclaimer
The information in this section of the website is intended for financial advisers only and is not to be distributed to clients. It has been prepared on behalf of Australian Executor Trustees Limited ABN 84 007 869 794 AFSL 240023, IOOF Investment Management Limited ABN 53 006 695 021 AFSL 230524, IOOF Investment Services Ltd ABN 80 007 350 405, AFSL 230703 and IOOF Ltd ABN 21 087 649 625 AFSL 230522 based on information that is believed to be accurate and reliable at the time of publication.